A building with a total economic life of 60 years and an effective age of 20 years has a remaining economic life of:
Correct Answer
A) 40 years
Why this is correct: Remaining Economic Life (REL) is the estimated period a building will continue to contribute to property value. It is calculated as Total Economic Life minus Effective Age: 60 years - 20 years = 40 years. Why the other choices are wrong: "60 years" is the total economic life, not the remaining life. "20 years" is the effective age. "80 years" is the sum, not the difference. Exam tip: REL = Total Economic Life - Effective Age. Effective age reflects condition, not chronological age.
Why This Is the Correct Answer
Option B is correct because remaining economic life is calculated using the simple formula: Total Economic Life - Effective Age = Remaining Economic Life. In this case, 60 years (total economic life) minus 20 years (effective age) equals 40 years of remaining economic life. This calculation represents the estimated number of years the building will continue to contribute value before reaching the end of its useful life.
Why the Other Options Are Wrong
Option B: 60 years
Option B incorrectly uses the total economic life (60 years) as the answer, which represents the entire lifespan of the building from new, not the remaining portion.
Option C: 20 years
Option C incorrectly uses the effective age (20 years) as the answer, which represents how much economic life has already been consumed, not how much remains.
Option D: 80 years
Option D (80 years) incorrectly adds the total economic life and effective age together, which has no basis in appraisal methodology and exceeds the building's total economic life.
TEL-EA=REL Formula
Remember 'TEL-EA=REL' where TEL (Total Economic Life) minus EA (Effective Age) equals REL (Remaining Economic Life). Think of it as 'Tell EA to RELax' - you're telling the effective age to relax because there's still remaining economic life left.
How to use: When you see any question about remaining economic life, immediately write down 'TEL - EA = REL' and plug in the given numbers. This prevents confusion about which numbers to add, subtract, or use directly.
Exam Tip
Always double-check that your remaining economic life answer is less than the total economic life and makes logical sense - a building cannot have more remaining life than its total designed life.
Common Mistakes to Avoid
- -Using effective age as the final answer instead of subtracting it from total economic life
- -Adding effective age to total economic life instead of subtracting
- -Confusing chronological age with effective age in the calculation
Concept Deep Dive
Analysis
This question tests understanding of economic life concepts in real estate appraisal, specifically the relationship between total economic life, effective age, and remaining economic life. Economic life refers to the period over which a building is expected to contribute positively to property value. Effective age represents the age of a building based on its condition and utility rather than chronological age. Remaining economic life is the future period during which the building will continue to contribute value to the property.
Background Knowledge
Economic life concepts are fundamental to the cost approach in real estate appraisal, particularly when calculating depreciation. Understanding these relationships is essential for determining how much value a building contributes to a property and estimating future depreciation patterns.
Real-World Application
Appraisers use remaining economic life calculations when applying the cost approach, particularly for insurance appraisals, tax assessments, and determining whether major renovations are economically feasible compared to replacement costs.
More Cost Approach Questions
A property is located in FEMA flood zone AE with a base flood elevation of 485 feet. The lowest floor is at 487 feet. What is the significance for the appraisal?
In a leasehold estate, the tenant's interest in the property is called:
A ground lease typically involves:
An appraisal of a rented single-family home where the lease runs another four years at below-market rent is valuing which interest, from the owner's side?
A duplex operates legally in a zone later rezoned single-family. What is its status, and the key appraisal question?
Which component carries roof loads down to the foundation in a typical wood-framed house?
A property owner wants to operate a daycare center in an area zoned for single-family residential use. What would they most likely need to obtain?
A deed restriction that prohibits the construction of fences over 4 feet in height is an example of:
Room count in residential appraisal conventionally excludes:
Type I construction classification typically refers to buildings with:
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Income Approach
8.2% of exam